AUSTRALIA: Housing Market Very Tight But Tentative Signs Of Easing

Housing affordability remained close to a series low in Q3 despite unchanged mortgage rates as home prices continued to rise. The impact of this can be seen in slower growth in the value of new loans for first time home buyers. The lack of available supply is also affecting these variables with new homes sold declining. Supply, affordability and rents are likely to be major election issues in 2025.

• Our housing affordability index remained around 44% below trend in Q3, which is very low but appears to be stabilising, consistent with the HIA’s index, with slower rises in house price inflation, steady mortgage rates and rising disposable incomes.
• CoreLogic capital city home values rose 1.3% q/q in Q3 to be up 7.4% y/y down from 9.7% in Q2. October rose 0.3% m/m to be up 6.2% y/y after 6.9% y/y but still 24% above trend. The moderation is being driven by Melbourne with home values down 1.9% y/y, while Sydney has eased to 3.7% y/y from 12.3% in January.
• Rental growth remained elevated at 6.7% y/y in Q3 but has been gradually trending lower since the 7.8% y/y peak in Q1 2024. Housing remains overvalued in terms of the ratio of prices-to-rents but that is moderating too.
• September capital city new home sales fell 3.2% y/y 3-month moving average after +4.9% in August. They rose 0.1% m/m but had fallen the previous four months.
• Building approvals for houses are recovering and are 12.4% above December 2019 but dwellings ex houses are lagging and are still 35.6% below. 3-month momentum for both is in double digits though, so hopefully the outlook is improving for a supply pickup.
• On the demand side, working age population growth has slowed to 2.5% y/y from a 3% peak.
• Overall home loan value growth has been robust for both owner-occupiers and investors, but slowing for first time home buyers.  

Australia housing affordability vs valuation % deterioration from trend